'Oh. Not bad!' - Professor Douglas Diamond's reaction on winning Nobel Prize for Economics

Record ID: 1692612

  • Title: 'Oh. Not bad!' - Professor Douglas Diamond's reaction on winning Nobel Prize for Economics
  • Date: 10th October 2022
  • Summary: CHICAGO, ILLINOIS, UNITED STATES (OCTOBER 10, 2022) (REUTERS) WIDE OF UNIVERSITY OF CHICAGO PRESS CONFERENCE (SOUNDBITE) (English) NOBEL PRIZE WINNER, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS, FINANCE PROFESSOR, DOUGLAS DIAMOND, SAYING: “Just two days ago, I was at a conference in, it called the Foundation for Advancement Research in Financial Economics, in honor of, a thing we set up in honor of my thesis advisor, Steve Ross, Stephen A Ross, and had dinner with Phil Dybvig, which I hadn't had post-pandemic. So it was very nice to see him and think all about this. So that was basically my reaction. ‘Oh, not bad!’“ NOBEL PRIZE WINNER, UNIVERSITY OF CHICAGO PROFESSOR, DOUGLAS DIAMOND SPEAKING AT A PRESS CONFERENCE (SOUNDBITE) (English) (SOUNDBITE) (English) NOBEL PRIZE WINNER, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS, FINANCE PROFESSOR, DOUGLAS DIAMOND, SAYING: “I had two papers that were mentioned. The other paper, the first paper from my dissertation was called Financial Intermediation and Delegated Monitoring. And one of the things that I didn't learn in graduate school was how to write a paper. So, another one of my colleagues, Myron Scholes, who has since retired and moved on to do other things besides academics for a while and then retired, he basically said, Don't submit this paper as it is. There's a good paper hiding in there somewhere. But, you know, if you, if you send it in, it’s – so, so my dissertation, which I finished in January of 1980, didn't get submitted until late 1982, as I tried to, to write it into a readable way. So if I'd written it the other way, I think they wouldn’t have mentioned it in Stockholm.” PHOTOGRAPHERS POINTING CAMERAS AT DIAMOND (NOT VISIBLE) (SOUNDBITE) (English) NOBEL PRIZE WINNER, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS, FINANCE PROFESSOR, DOUGLAS DIAMOND, SAYING: “Let me first say, I'm not a monetary economist about inflation and things like that, and let me stick to the stance of financial stability. The Fed has done remarkably well in financial stability. Certainly, in the period after the Lehman Brothers thing, the Fed did pretty much everything right. One reason was that we were very lucky to have Ben Bernanke as the chair. So, Ben, you know, fellow laureate in this, he and I basically had papers coming out roughly at the same time about bank runs. So, there was again, he has said that, you know, that our paper with Phil Dybvig, is one that is sort of front of mind when people start thinking about crises.” DIAMOND SPEAKING, AUDIENCE MEMBERS LISTENING (SOUNDBITE) (English) NOBEL PRIZE WINNER, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS, FINANCE PROFESSOR, DOUGLAS DIAMOND, SAYING: “Financial crises occur when something bad happens, there's some uncertainty increase or there's some losses and things like that. But the point of our paper is that once people think the financial system, as it's well structured, a well-structured financial system is very vulnerable to the fear of fear itself, a self-fulfilling prophecy that it might go down. So, Ben [Bernanke] internalized that in his suggestions on policy, and I think sort of central bankers, in general, have internalized that lesson. So you've got to think about what's the initial shock that causes trouble. And you've got to, that's what you have to deal with to get the economy back. But if you destroy the entire financial system in the meantime, you're going to have a very hard time recovering.” VARIOUS OF AUDIENCE MEMBERS LISTENING (SOUNDBITE) (English) NOBEL PRIZE WINNER, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS, FINANCE PROFESSOR, DOUGLAS DIAMOND, SAYING: “Part of the point of the paper with, part of the point of Diamond-Dybvig, is that you can never - it's not good to completely get rid of bank runs. You know, every so often, you know, you want to leave yourself somewhat vulnerable, but not very vulnerable. And then in the extreme cases, when confidence breaks down or losses are so extreme, then you need some kind of government or industry-wide intervention. So, I think probably post 2008, the regulations of actual commercial banks got so tough that the banking system is actually in reasonably good shape right now, much better shape than it was before 2008.” MORE VARIOUS OF AUDIENCE MEMBERS LISTENING (SOUNDBITE) (English) NOBEL PRIZE WINNER, UNIVERSITY OF CHICAGO BOOTH SCHOOL OF BUSINESS, FINANCE PROFESSOR, DOUGLAS DIAMOND, SAYING: “You don't want to win it too young, right? It sort of goes to your head and things like that. So, I'm glad they didn't wait until I was well past my last sale date.” WIDE OF AUDIENCE APPLAUDING PHOTOGRAPHERS SNAPPING PHOTOS OF DIAMOND
  • Embargoed: 24th October 2022 18:43
  • Keywords: Douglas Diamond Economics Nobel Prize banks financial crisis
  • Location: CHICAGO, ILLINOIS, UNITED STATES
  • City: CHICAGO, ILLINOIS, UNITED STATES
  • Country: US
  • Topics: Science,United States
  • Reuters ID: LVA001125710102022RP1
  • Aspect Ratio: 16:9
  • Story Text: University of Chicago Booth School of Business finance professor Douglas Diamond was one of three U.S. economists, including former Federal Reserve Chair Ben Bernanke, who won this year’s Nobel Economics Prize on Monday (October 10) for laying the foundation of how world powers now tackle global crises like the recent pandemic or the Great Recession of 2008.
    Speaking at a news conference at the University of Chicago, Diamond said his reaction upon hearing the news was, “Oh, not bad!”, and laughed.
    When a reporter asked Diamond if he wished he'd won the prize 20 years ago, he replied: “You don't want to win it too young, right? It sort of goes to your head and things like that. So, I'm glad they didn't wait until I was well past my last sale date.”
    The trio, who also includes Philip Dybvig, won for their research on how regulating banks and propping up failing lenders with public cash can stave off an even deeper economic crisis, such as the Great Depression of the 1930s.
    “Financial crises occur when something bad happens, there's some uncertainty increase, or there's some losses and things like that,” Diamond said. “But the point of our paper is that once people think the financial system, as it's well structured, a well-structured financial system is very vulnerable to the fear of fear itself, a self-fulfilling prophecy that it might go down.”
    Governments around the world bailed out banks in 2008 and 2009, generating a torrent of criticism as ordinary consumers suffered with many losing their homes even as banks, a key culprit of the crisis, were saved.
    But society, on the whole, benefited and the bailouts, even if morally questionable to some, likely prevented more pain, the laureates' research suggests.
    Ironically Bernanke was the chair of the U.S. Federal Reserve at the time of Lehman's collapse in 2008, which became one of the main catalysts of the world's biggest financial turmoil since the 1930s.
    Bernanke, now a fellow at the Brooking Institution, argued at the time that there was no legal way to save Lehman so the next best thing was to let it fail and use the government's financial resources to prevent wider systemic failures.
    Part of that response, including ultra-low interest rates and massive central bank asset buys are being reversed now as inflation is at its highest level in around half a century in many parts of the world.
    The trio's work also has implications for the current economic turmoil as raising interest rates at a record pace to fight inflation amplifies recession risks that will inevitably challenge the financial sector.
    (Production: Eric Cox, Christine Kiernan)
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